Victor Ugochukwu · Dec 14, 2020 . 5min read
Ethereum deposit fees on exchanges drop from 25% to 1% in 3 years
Some notable events, however, happened in 2020 which one can attribute as the reason for this paradigm shift in deposit fees of Ethereum on exchanges.
By Victor Ugochukwu · Dec 14, 2020 . 8min read
Ethereum deposit fees on centralized exchanges have fallen drastically over the course of three years moving from an initial 25% down to 1%. Basically, at the height of the ICO mania, most ETH was transferred in and out of exchanges specifically to buy into the newest tokens or cash out on gains. Glassnode, a blockchain and cryptocurrency analytic firm revealed this update when it posted a chart
The crypto space is awash with speculative activities where users majorly flip one coin for either BTC or ETH; the most capitalized cryptocurrencies. Ethereum as we know it only allows people to pay for transaction fees in ETH and not the ERC-20 token they intend to transfer as we know it. Hence, developers burn gas fees in ETH and no other token when programming any dapp or feature on Ethereum.
Centralized exchanges apart from just presenting an avenue for users to deposit and withdrawal also added staking features. People could stake their ETH for a given APY. But as the activities within the crypto space intensified, DeFi picked up steam and singlehandedly initiated the bull run the industry experienced in 2020.
It appears as though people are now using ETH instead of trading ETH hence the deposit fees on exchanges falling dramatically. Some notable events, however, happened in 2020 which one can attribute as the reason for this paradigm shift in deposit fees of Ethereum on exchanges.
DeFi activities on Ethereum network necessitated the drastic fall in deposit fees on Exchanges.
Uniswap did a thorough job in sparking the DEX revolution that snowballed into the DeFi boom of 2020. Supporting several liquidity pools, it made it easier for projects to bootstrap liquidity. Instead of just leaving ETH on centralized exchanges, people interacted with pools (essentially smart contracts) as LPs (Liquidity Providers) to earn yields. By the end Q3, Uniswap’s DEX volume reaching $23.2 billion in the same period.
More people participated in the yield farming mania during the height of the DeFi boom than any other time since Ethereum’s creation. Ethereum miners, for instance, raked in so much in fees up to $166 million in September. These fees were largely due to pools in DEXes like Curve, Uniswap, Balancer protocol and others.
The much-awaited yETH vault by Yearn Finance also went live during Q3. It allows users to stake farm yields with ETH directly by connecting to MakerDAO protocol. This also led to an unprecedented amount of ETH lock-up in the yETH vault.
Eth 2.0 deposit contract constantly getting an influx of ETH.
After so much waiting and hiccups, Eth 2.0 phase zero has been activated. Beacon Chain went live after deposit contract smashed past the 540k ETH minimum threshold on December 1st. As at today, over 1.4M ETH is currently locked-up in Eth 2.0 deposit contract. Validators in Eth 2.0 stake at least 32 ETH for the opportunity of confirming transactions on the network while earning for ETH. They can only do this by moving their ETH away from CeFi and then to deposit contract.
To mitigate this migration, CeFi like Binance has launched an ETH 2.0 Staking service. Users that participate in ETH 2.0 staking will receive BETH* at a ratio of 1 ETH = 1 BETH. Coinbase and Kraken have also announced they will join the bandwagon but without notice of date yet.
DeFi is set even to get more intense as Ethereum broaden its capacity to accommodate more transactions. This could further trigger more drop-in deposit fees on CeFi exchanges as we know.
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